The boss of the Air France-KLM Group has said that he would be open to working with private investment firm Castlefirm on a bid to acquire the European low-cost airline EasyJet.
Speaking on the sidelines of the annual general meeting of the International Air Transport Association (IATA) in Brazil, Ben Smith made it clear that while the Air France-KLM Group wasn’t currently in active discussions, he would “absolutely” take a call from Castlelake over a potential joint bid.
The U.S. investment firm Castlelake first signalled its interest in acquiring EasyJet late last month, saying that it was in the early stages of considering a possible offer for the airline, although, at that point, it hadn’t even yet approached EasyJet’s board of directors.
EasyJet’s board responded to the news by saying that it had a duty to “maximise shareholder value and will consider any proposal,” but raised concerns about Castlelake’s “opportunistic” timing, as well as significant regulatory hurdles that would have to be overcome.
Castlelake’s interest in EasyJet is pretty transparent: The firm specialises in acquiring assets, and EasyJet is currently worth less than the asking price of the aircraft, engines, and other assets that it currently owns.
Given the effect that surging oil prices have had on EasyJet’s share price in recent months, the timing couldn’t be better for Castlelake.
Under European competition rules, however, Castlelake can’t acquire a controlling stake in EasyJet as it is based outside the EU. Instead, it would need to find a European-based partner, such as the Air France-KLM Group.
The group previously worked with Castlelake in its acquisition of SAS Scandinavian Airlines. Castlelake acquired a 32% stake in SAS before selling its shares to Air France-KLM.
The group is currently a frontrunner in a bid to acquire TAP Air Portugal, and it already operates the low-cost Transavia brand. The fact that Air France-KLM doesn’t overlap in EasyJet’s dominant markets, especially in the UK, could, however, make it a contender for the Luton-based airline.
In contrast, regulators would have a hard time justifying a potential joint acquisition between Castlelake and IAG, which owns British Airways, due to the dominance it would give the Madrid-based airline group in key markets like London Gatwick.
Ryanair’s Michael O’Leary has already ruled out the possibility of acquiring an airline brand, although he has signalled interest in snapping up the assets of any airline that falls into liquidation due to high fuel prices.
Castlelake currently holds shares in EasyJet worth around 2.14% of the company. If the firm were to make an offer for EasyJet, it would have to offer at least 403.23 pence per share.
